Later-Stage Venture Capital Valuations Approach Dot-Com High

Valuations for venture-backed companies raising second and later rounds of financing are shooting toward levels not seen since the dot-com era, providing further evidence of investment froth in the tech sector.

New data from industry tracker Dow Jones VentureSource pegs the median pre-money valuation for later venture rounds–those done after a second financing round–at $80 million for the first nine months of 2013, by far the highest level since 2000.

That year the median pre-money valuation, or a company’s value just prior to receiving a venture capital investment, reached $88.9 million. It plummeted to $40 million the following year as the tech bubble deflated.

Second round and later-stage valuations of venture-backed companies are nearing dot-com levels.

VentureSource

Second rounds, too, are approaching the heady levels of the turn of the century. As of the end of the third quarter, the median pre-money valuation for companies raising second rounds stood at $34.7 million, well above the median for last year and approaching the $40 million high of 2000.

George Bischof, a managing director at later-stage venture investor Meritech Capital Partners in Palo Alto, Calif., said in an email that more startups than ever are thriving because of technology innovations and shifts that seem sustainable.

“The consequence is investors are justifiably more excited and, in the fervor, valuations have risen materially over the past two years,” he said. “As investors we have to remember that only a minority of the companies we see will generate billion-dollar outcomes so, though so many companies are working, we have to be as discerning as ever since pricing is higher.”

Valuations for second and later rounds, which took a blow during the financial crisis, have generally been trending upward since 2011 but so far this year they have taken flight, according to the data from VentureSouce, which is owned by VentureWire publisher Dow Jones & Co.

But first-round valuations have fallen, a sign that venture investors are being prudent with very young companies, choosing to pump their money into the ones that gain market traction.

The median pre-money valuation for first rounds through September was $4.5 million, a significant drop from last year’s median of $7.1 million. Seed rounds also took a dive to $1.2 million, down from $2.7 million in 2012.

That indicates that VCs are more rational now than in 2000, when early-round valuations climbed along with the rest of the market. Median pre-money valuations peaked in 2000 at $12 million for first rounds and $4.75 million for seed rounds.

Interestingly, the median valuation for first rounds shot to $7.1 million last year from $5.5 million in 2011 before falling for the first nine months of 2013. This perhaps is because last year VCs were competing for the hottest companies in a crop of seed-funded startups that has now been mostly harvested.

Write to Russ Garland at russell.garland@wsj.com. Follow him on Twitter at @RussGarland